Video Reports

Embed this video

Copy Code

Link to this video

Get LinkEmbedLicenseRecommend (-)Print
Bookmark and Share

By Kiran Lalani | 02-13-2015 10:00 AM

2 Distinct Paths to Municipal-Bond Investing

Vanguard Long-Term Tax-Exempt cautiously manages credit- and interest-rate risk while Western Asset Managed Municipals delves into mid-quality credits and actively manages duration.

Kiran Lalani: Today, we will talk about two medalist funds, both in the Morningstar muni-national long-term category, that do things very differently yet very well.

The first is Vanguard Long-Term Tax-Exempt (VWLTX). Manager Mathew Kiselak runs this strategy defensively, keeping a high-quality portfolio that sticks to its Barclays Municipal Bond Index benchmark. As a result, the strategy has performed consistently with its risk-averse style. For example, in 2012, when credit and interest-rate risks were being rewarded, this strategy lagged more than half of its category peers; however, it was rewarded well in 2013, as its interest-rate caution helped it shine amidst rising muni yields. But cautious management is only part of the story here. Vanguard's rock-bottom expenses do a lot of the heavy lifting in making this fund rise above its peers and help it earn its Morningstar Analyst Rating of Silver.

The second fund is Western Asset Managed Muni (SHMMX), another medalist fund in the same category that applies a more active approach. Managers Rob Amodeo and David Fare focus on the mid-quality sectors of the municipal market. They also actively manage the fund's interest-rate risk. For example, last year, they brought the fund's duration down by about three years to protect it from price declines due to rising interest rates. While its duration management has had mixed results, the fund's credit and sector selection have paid off well, warranting its Morningstar Analyst Rating of Bronze.

So, while both funds have very different management styles, they have generated sound long-term returns for their investors and have rightfully earned their respective medalist ratings.

{0}-{1} of {2} Comments
{0}-{1} of {2} Comment
  • This post has been reported.
  • Comment removed for violation of Terms of Use ({0})
    Please create a username to comment on this article